A Comprehensive Guide to the Best ETFs in Australia

Exchange Traded Funds (ETFs) have seen a significant rise in popularity among investors worldwide, including Australia. The trend is justified, considering ETFs’ myriad benefits, including diversification, cost-effectiveness, and accessibility. This comprehensive guide explores the best ETFs in Australia, offering insights into their performance, features, and what makes them a worthy choice for your investment portfolio.

Understanding the Concept of ETFs

ETFs are managed funds that can be bought and sold on an exchange, much like individual shares. By purchasing from them, investors have an easy option to diversify their portfolios. into a basket of shares or assets in a single trade.

Most ETFs are constructed to mirror the performance of a specific index or asset class. For instance, they might track an index like the S&P/ASX 200 in Australia or the S&P 500 in the United States or particular assets such as a currency or a commodity like gold or agricultural products.

ETFs are typically passively managed, meaning the fund manager’s role is to ensure that the ETF accurately tracks the chosen index or asset. As a result, ETFs generally have lower management fees than their actively managed counterparts.

Types of ETFs

ETFs are not a one-size-fits-all product. They come in several types, each offering exposure to different asset classes and individual assets. This includes Australian shares, international shares, commodities, and currencies. Here are some of the common types of ETFs:

• Australian Broad-Based ETFs: This type of ETF offers exposure to a broad range of Australian shares.
• Australian Sector ETFs: These ETFs focus on specific sectors within the Australian market, such as resources or financials.
• Australian Strategy-Based ETFs: These ETFs use a specific investment strategy, targeting high-dividend yield stocks.
• International Broad-Based ETFs: These ETFs expose a broad range of international shares.
• International Sector ETFs: Similar to Australian Sector ETFs, these ETFs target specific sectors within international markets.
• Commodity ETFs: These offer exposure to commodities like gold, oil, or agricultural products.
• Currency ETFs: These ETFs track the performance of a specific currency against another currency or a basket of currencies.

Identifying the Best ETFs in Australia

Selecting the best ETFs in Australia is subjective and depends on factors such as your investment goals, risk tolerance, and time horizon. Nonetheless, some key performance indicators can guide your selection. Here are some top-performing ETFs in Australia based on their three-year returns as of March 2024:

Bear in mind that past performance is not a reliable indicator of future performance.

Diving Deeper into the Top ETFs

Let’s delve deeper into the specifics of some of these top-performing ETFs to understand what makes them stand out in the Australian market.

1. Betashares Global Energy Companies ETF-Currency Hedged (FUEL)

The Betashares Global Energy Companies ETF offers exposure to the world’s largest energy companies, including those involved in extraction, production, and distribution. It is currency hedged, which helps to protect Australian investors from fluctuations in the foreign exchange market.

1. BetaShares Crude Oil Index ETF-Currency Hedged (OOO)

The BetaShares Crude Oil Index ETF provides exposure to the performance of crude oil through the use of futures contracts.It provides a special chance to invest for those interested in commodities, particularly oil.

1. Global X FANG+ ETF (FANG)

The Global X FANG+ ETF offers exposure to highly traded growth stocks from the technology and consumer discretionary sectors. It includes companies like Facebook, Amazon, Netflix, and Google (hence the acronym FANG).

1. VanEck MSCI International Quality ETF (QUAL)

The VanEck MSCI International Quality ETF provides exposure to international companies exhibiting certain quality factors, such as high return on equity, stable year-over-year earnings growth, and low financial leverage.

1. iShares Global 100 ETF (IOO)

The iShares Global 100 ETF offers exposure to 100 large, international companies in technology, healthcare, and consumer discretionary sectors. It is designed to track the S&P Global 100, an index that comprises multinational blue-chip companies.

Factors to Consider When Choosing an ETF

While the performance of an ETF is crucial, it shouldn’t be the only factor in your selection process. Here are some additional aspects to consider:

• Diversification: Ensure the ETF offers adequate diversification across sectors and companies. Remember, investing in ETFs aims to spread risk, not concentrate it.
• Management Expense Ratio (MER): This is the amount the fund management charges to defray the expense of running the exchange-traded fund. A lower MER generally means more returns for you.
• Liquidity: Check the trading volume of the ETF. A higher trading volume generally means the ETF is more liquid, making it easier to buy and sell.
• Tracking Error: This is the difference between the ETF’s performance and its tracking index. A lower tracking error means the ETF is doing an excellent job of mirroring the index.
• Fund Size: Larger funds can often operate more efficiently due to economies of scale, resulting in lower investor costs.

Conclusion

ETFs are an excellent investment vehicle for both novice and experienced investors. They provide an economical and effective means of spreading your portfolio’s holdings across several industries and asset types. But like any investment, it’s essential to do your research and consider your circumstances before deciding.

Remember, the best ETF for you will depend on your investment goals, risk tolerance, and time horizon. It’s always a good idea to consult a financial advisor to help guide investment decisions.